Nuveen: Real assets offer attractive diversification opportunities

September 25, 2026

Real assets – real estate, infrastructure, farmland and timberland – have long been valued for their income and inflation-linked characteristics. Abigail Dean, Global Head of Strategic Insights at Nuveen Real Assets, argues their appeal runs deeper still: genuine diversification. She discusses where the most compelling opportunities lie today.

By our editorial team

Which real asset sectors are currently most attractive from a risk-adjusted return perspective?

‘Over a 30-year historical analysis, private real assets—real estate, farmland, timberland, and infrastructure—each delivered higher risk-adjusted returns as measured by Sharpe ratio, than traditional stocks and bonds, contributing positively to a hypothetical diversified portfolio.

Infrastructure had the highest average annual return (~11.6%) and a Sharpe ratio of 0.82, reflecting contracted, often inflation-linked cash flows and long asset duration. Real estate posted a 0.58 Sharpe ratio, supported by lease income and appreciation, and showed low or negative correlation to other assets studied, suggesting diversification benefits beyond returns alone.

Within natural capital, farmland's Sharpe ratio of 1.08 was highest overall, driven by low volatility (6.8%) and strong returns, while timberland achieved 0.71. Combined into a hypothetical 100% private-real-assets allocation, these four categories together produced a Sharpe ratio of 1.23—exceeding traditional stock and-bond mixes over the same period. 

Where do you see the most compelling investment opportunities across infrastructure, real estate and natural capital today?

‘In real estate, debt could offer an attractive entry point given the LTV reset, while living and healthcare sectors globally – including senior living in Japan, healthcare and senior living in the U.S., and student housing in Europe – are supported by supply-demand imbalances. Retail is also increasingly compelling where it’s necessity-led. Retail parks have been ‘stress-tested,’ face minimal new supply, and are benefiting from a flight to quality as weaker discretionary formats struggle. Nature-based solutions strategies – carbon forestry, regenerative agriculture and ecological restoration – are attracting growing capital as environmental markets mature. Meanwhile, U.S. ecosystem restoration markets – wetland, stream and species mitigation banking – offer a genuinely uncorrelated income stream, tied to local development activity rather than macro cycles. In infrastructure, renewable energy co-located with data centres could be a standout opportunity. Private wire PPAs and battery storage are unlocking growth in markets with constrained grid export capacity, such as Southern Europe and the Nordics, hence bypassing the connection bottlenecks affecting FLAP-D hubs.’ 

You mentioned debt as an attractive entry point in real estate. Can you give a concrete example?

‘European levered debt is a compelling example. The levered structure lets a debt fund capture the same loan interest income while committing less capital, potentially enhancing return potential. Two features make this attractive today: as capital values recover from the cycle’s bottom, LTVs compress automatically, de-risking the loan over time. Also, interest rate floor mismatches – typically zero on the back-leverage but above zero on the whole loan – create an asymmetric payoff: when rates fall below the whole loan floor, levered returns increase while unlevered returns plateau. With European values still roughly 25% below their 2022 peak¹ and showing signs of stabilization, this could offer an unusually favourable entry point regardless of the interest rate path ahead.’ 
 

Within natural capital, farmland’s Sharpe ratio of 1.08 was highest overall, driven by low volatility and strong returns.

 
How are geopolitical fragmentation and supply chain reconfiguration affecting real assets investment opportunities?

‘Trade barriers and reshoring are reshaping industrial real estate demand. Companies relocating production closer to end-markets are driving renewed demand in previously overlooked manufacturing communities – North Carolina, Georgia and Tennessee in the U.S., or Central Germany, Northern Italy and the U.K. Midlands in Europe – while legacy logistics hubs like Rotterdam, Antwerp and Greater Los Angeles face pressure to adapt. This extends to supplier networks, reinvigorating industrial clusters. Fragmentation is also reshaping capital flows into nature-based solutions. As governments pursue localized, resilient food and resource systems, national policy initiatives – from the EU’s biodiversity strategy to Australia’s Nature Repair Act – are mobilizing domestic private capital toward regenerative agriculture and ecological restoration, creating opportunities more insulated from cross border trade disruption than traditional commodity-linked real assets. This dynamic is especially pronounced in infrastructure, where the renewable energy transition exemplifies supply chain vulnerability. Exposure differs by technology: polysilicon for solar, lithium, graphite and nickel for storage, and a small subset of rare earth elements for the permanent magnets in wind turbines. Demand continues to climb, with critical minerals demand almost doubling to 2040 under the IEA’s Stated Policies Scenario, and concentration is tightening rather than easing: the average share held by the top refined supplier reached a record 70% in 2025². Investors must weigh diversification risk in critical mineral sourcing, favouring sponsors with strong upstream governance and traceability, adding a new due diligence dimension.’ 

Which risks are investors currently underestimating within real assets?

‘Climate change represents a systemic risk that can be underestimated. Indirect effects such as smaller bidder pools, ‘brown’ discounts, longer vacancy periods and rising insurance costs often erode returns before any direct climate event occurs. One U.S. study found 3.2 million people had already fled flood-risk neighbourhoods between 2000 and 2020³, a migration trend investors have been slow to price into market selection. Financing conditions have also moved against investors more than base rates suggest. In some European real estate markets, debt has become non-accretive, while decarbonization capex could rise faster than rental income, risking stranded assets. Logistics investors may also underestimate power availability constraints on development and NOI growth as sites compete with data centres for grid capacity. However, the transition to a low carbon economy also represents considerable opportunity, including the transformation of ‘brown’ to ‘green’ real estate, continued growth in renewable energy and battery storage demand, and environmental markets adding income streams to natural capital investment.’ 

How is artificial intelligence influencing the investment outlook for real assets beyond data centres?

‘Investors increasingly view real assets as a diversifier to AI equity exposure, representing an attractive allocation opportunity. However, AI also represents considerable growth potential for real assets itself, with influence extending well beyond data centre demand. In U.S. office markets, AI-related investment has helped offset broader economic softness and is a specific driver of leasing demand in markets like San Francisco. AI is also reshaping property and agriculture operations through building automation, enhanced tenant experience and AgTech efficiencies that compress operating costs and improve NOI predictability. In Asia-Pacific, the region’s role as an AI hardware production hub is supporting export-driven growth in South Korea, Singapore, Malaysia and Vietnam. Meanwhile, AI-driven power demand is accelerating investment in renewable generation, grid infrastructure and battery storage: a second-order infrastructure opportunity likely to persist even if data centre construction itself moderates.’ 
  

1. CBRE Prime Capital Value Index, as of August 2026
2. International Energy Agency (IEA) Global Critical Minerals Outlook 2026
3. First Street Foundation (2023), Climate Abandonment Areas Report

 
Read the full article in Financial Investigator magazine